Secrecy Act, Patriot Act put added burden on banks.

A lot of bankers have been thinking wistfully lately about the good old days when the biggest thing they had to worry about was credit quality.

Today, a gaggle of federal and state regulations has turned what had been a routine paperwork exercise into a 24/7 job and made compliance the biggest risk bankers cannot afford to take.

In recent weeks, the release of a new examination manual geared to help financial institutions navigate the regulations has once again shined the spotlight on two pieces of legislation, the Bank Secrecy Act and the USA Patriot Act, intended to help flush out potential terrorist activity and money laundering by closely monitoring financial transactions.

With steep penalties recently imposed on several banks for failing to comply with the regulations, banks and credit unions are reexamining their policies and procedures and spending thousands, if not millions to be certain they meet the standards set.

"When I put together the original group of employees, one of the positions was a dedicated compliance officer," said James D. Hicken, president and CEO of Bank of Santa Clarita which opened its doors last October. "I believe one of the biggest risk areas is compliance with the Bank Secrecy Act. BSA is a very complex and time consuming area for the bank. It's part of our environment and part of what we have to live with."

Passed following the Sept. 11 terrorist attacks, and now being debated by Congress as it considers renewing the provisions, the Patriot Act resulted in substantial amendments to the older BSA legislation, putting the onus on financial institutions to know their customers and identify and report suspicious banking activity. That has led to a re-examination of a range of once-rote procedures from what types of identification to accept for new accounts to providing money wiring services.

Millions in fines have already been paid by banks that failed to comply with the letter of the law, whether or not actual criminal activity took place as a result.

City National Bank of Beverly Hills in recent months agreed to pay $750,000 to settle allegations that it violated BSA. And AmSouth Bancorp in Birmingham, Ala., agreed to a $50 million settlement with two federal agencies.

The examples have not been taken lightly by banks and credit unions, regardless of their size.

"In a community bank, we're a lot closer to the people in the market, but that doesn't allow you to waive any of the requirements, so we still have to go through the same process and therefore I think you have the same cost," said David Rainer, president and CEO of the newly chartered California United Bank in Encino. "It's been a theme for many years to know your customer, but with everything that's happened around terrorism, it's become much more important."

The larger the bank, the more expensive the cost of compliance, but even small banks are finding that they are spending large sums to meet regulatory requirements.

Like many, First Bank of Beverly Hills in Calabasas has had to purchase new software to cross check names against federal watch lists, and although officials can't put a number to it, they believe the expenditure, when all things are considered, is sizable, in time if not money.

"We had to form a task force just to get our arms around everything," said Bryce Miller, senior vice president of technology and compliance at FBBH. "It crosses all areas of the bank. Everybody is getting assignments because we have to slice and dice and analyze the risk assessments of the customers, the products, the geographical location of where money is coming from and other types of assessments. And from our standpoint, we are a low risk institution."

Credit unions, too, tend to experience a lower risk of suspicious activity, but they too have had to gear up for the regulators.

"It's probably more of an issue for smaller credit unions that have less resources," said Valerie Moss, director of compliance information for the Credit Union National Association. "A lot of times it means buying additional software. It does come down to money."

"If I could put a number on it, I would say year one it will cost maybe $10,000," said Roberto Barragan, who is chairman and CEO of the newly formed Pacoima Federal Development Credit Union. "But for the bank I'm a director at, I wouldn't be surprised if the costs are in excess of $100,000."

Seeking to do as much as possible to reduce their exposure, Telesis Community Credit Union no longer accepts matricula consular cards, I.D.'s issued by the Mexican and other consulates to citizens living in the U.S., from customers opening new accounts.

"We used to take them as a last case form of I.D.," said Dick Cooper, vice president for government and community relations at Telesis. "We don't take them anymore. It's something that, with all the other things that can go wrong, we don't want to create undue problems."

Matricula consular cards are widely used in places like Southern California where new immigrants from Mexico and South and Central American countries offer a relatively new and lucrative market of new business for banks.

Since it began accepting matricula consular cards, Wells Fargo has opened more than 500,000 new accounts using the identification, accounting for 6 percent of the bank's new business. Wells, the first bank to accept the cards as identification, said most of that business has come in California and Texas.

"It was a pretty big need for the Hispanic community and the newer immigrant Latino," said Mary Trigg, a spokesperson for Wells. "Up until that point, without being able to open an account they were restricted to using check cashing offices or keeping the cash at home or carrying it."

Undocumented immigrants in particular are prey to check-cashing services that charge exorbitant fees for services, and the cards have proven to be a stepping stone to wider use of conventional banking services for these groups.

So far at least, there's been no attempt on a federal level to prohibit the use of the cards, although they are no longer allowed as a primary form of identification in New York state. And most banks are continuing to accept matricula consular cards for identification.

"It seems a lot of companies are going ahead and accepting them because of the inflow of deposits as well as a lot of money gets sent to Mexico and banks get to do that transaction too," said Brian Shullaw, senior research analyst at SNL Financial.